Supreme Court to hear arguments in severance pay tax case

Washington – The Obama Administration is seeking to have an appeals court ruling concerning the tax refund of a now defunct retailer overturned. As reported by Reuters, the administration was set to ask while presenting oral arguments before the high court on Tuesday that the decision of a lower court favoring the issuance of a tax refund to Quality Stores Inc. be overturned. Quality Stores declared bankruptcy in 2001.

The case of the refund issue could trigger the filing of claims by businesses and individuals to whom the IRS could owe over $1 billion if the ruling of the appeals court is upheld according to the administration.

The major issue at hand concerning the case is whether severance pay to employees who were terminated involuntarily is taxable under the Federal Insurance Contributions Act tax, or FICA. The IRS and Quality Stores are in disagreement over the interpretation of the tax code language pertaining to FICA taxes and severance pay.

Kristin Hickman, a law professor at the University of Minnesota, is quoted as stating of the matter, “Both sides have plausible arguments about how the statutes can be interpreted.”

A decision in the case, United States v. Quality Stores Inc. No. 12-1408, is expected to be reached in June.